Publication: On the empirical content of carbon leakage criteria in the EU emissions trading scheme
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2014-04
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Elsevier
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Abstract
The EU Emissions Trading Scheme continues to exempt industries deemed at risk of carbon leakage
from permit auctions. Carbon leakage risk is established based on the carbon intensity and trade
exposure of each 4-digit industry. Using a novel measure of carbon leakage risk obtained in interviews
with almost 400 managers at regulated firms in six countries, we show that carbon intensity is strongly
correlated with leakage risk whereas overall trade exposure is not. In spite of this, most exemptions
from auctioning are granted to industries with high trade exposure to developed and less developed
countries. Our analysis suggests two ways of tightening the exemption criteria without increasing
relocation risk among non-exempt industries. The first one is to exempt trade exposed industries only
if they are also carbon intensive. The second one is to consider exposure to trade only with less
developed countries. By modifying the carbon leakage criteria along these lines, European
governments could raise additional revenue from permit auctions of up to €3 billion per year, based on
a permit price of €30
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Keywords
Carbon leakage, Industrial relocation, Emissions trading, EU ETS, Permit allocation, Firm data
Bibliographic citation
Martin, R., de Preux, L.B., y Wagner, U.J., "On the Empirical Content of Carbon Leakage Criteria in the EU Emissions Trading Scheme", Ecological Economics, September 2014, v. 105, pp. 78-88